Tuesday, January 15, 2008

David Austin of the CBO has a study on the impact of Gas Prices on Driving Habits

It is here:

http://www.cbo.gov/ftpdocs/88xx/doc8893/01-14-GasolinePrices.pdf

The study finds that price effects on consumption and vehicle choice are small. This suggests that gas taxes fare poorly as a Pigou Tax--a tax put in place to cure an externality--but perform well as a Ramsey tax--a tax that doesn't distort behavior.

A policy that has made sense to me for a long time is one that would use higher gas taxes (which are salubrious whether Pigou or Ramsey) to fund lowering the payroll tax. Lowering the payroll tax would stimulate spending and encourage workers to work and hirers to hire. It does decouple Social Security Revenue from Spending, and as such creates political problems, but still..

1 comment:

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